Tony Packo's owner to be selected

10/6/2011

BY JON CHAVEZBLADE BUSINESS WRITER

Tony Packo's main restaurant at 1902 Front Street in Toledo, Ohio.

The new owner of the Toledo-based Tony Packo's Inc. restaurant chain is to be determined in court Thursay, but it's unclear whether the winner of three bidders will be able to keep using the chain's name and own the secret recipes, and whether the company's current owners can open competing eateries.

Judge Gene Zmuda, of Lucas County Common Pleas Court, said last week he would decide at a 1:30 hearing this afternoon who the winning bidder will be.

But he did not say whether he will specify which assets will be sold to the winner or whether he will address a pending motion by one of the East Toledo company's current owners which contends the company name and recipes are not corporate property and the sale would not prohibit a competing restaurant next door to an existing one.

Legal experts said the name and recipes typically would be sold as assets, but there are exceptions. Plus, one attorney involved in the case indicated that the judge may not decide on those issues until next month.

That could leave today's winning bidder uncertain about which assets have been purchased and which ones have not.

The company is half owned by Tony Packo, Jr., and his son, Tony Packo III, who are president and executive vice president. The other half is owned by Robin Horvath, a cousin and a company executive, who sued the Packos last year in an effort to gain control of the firm. The decision to put the company up for sale was a result of the litigation, and the proceeds will be used, in part, to repay Fifth Third Bank for its $2.6 million in unpaid loans.

Judge Zmuda is to decide among three bidders: TP Foods LLC, which is from Bob Bennett, owner of 26 area Burger King restaurants; Nancy Packo LLC, which is from Mr. Horvath and his wife and named after Mr. Horvath's mother; and Front Ballpark Operations LLC, which is from Mr. Packo III and outside investors, including local restaurant owner Gus Mancy.

Court-appointed receiver Skutch Co. Ltd. has reviewed the bids and presented details to the court, without a recommendation. The report indicates TP Foods offered $5.5 million in cash, Nancy Packo LLC offered at least $4 million in cash, and Front Ballpark offered at least $3.1 million in cash. Each bid contained contingencies, but each was considered competitive by the receiver.

The chain, known for its chili sauce on its Hungarian hot dogs, was made famous nationally in the 1970s by its repeated mentions during the television series M*A*S*H by character Max Klinger, who was played by native Toledoan Jamie Farr.

But the value of the purchase of the chain, begun in 1932, will be affected by what assets are included.

In two recent court filings, Mr. Packo Jr. and Mr. Packo III stated that the "Tony Packo" corporate name refers to Mr. Packo, Jr., and that he has no intention of allowing others to use the name and that a court-appointed receiver has no authority to sell it as an asset of the corporation.

Further, the two Packos stated that the famed Packo's recipes and recipe blends used for to make the chili, hot dog sauce, and other food items are intellectual property that belong to Mr. Packo, Jr., and his son and that the receiver has no authority to sell "any recipes, recipe blends or know-how personally owned by either of the Packos, and in particular Anthony L. Packo, Jr."

In another court filing, Mr. Packo III's bidding company states that, because no noncompete or confidentiality agreements currently exist, "the Packos are free to set up 'Tony's Hungarian Hot dogs' next door to each of the current five locations and free to create their own recipes."

Subsequently, Mr. Bennett's attorney's filed a motion asking Judge Zmuda to declare that he has the authority to determine what assets are under the control of the receiver and to find that the recipes and trade name are assets that belong to the corporation.

"Our position is that the trade name and recipes are part of the Tony Packos Inc. estate," David Coyle, attorney for Mr. Bennett, told The Blade yesterday.

James Rogers, an attorney for the Packos, was unavailable for comment yesterday. An attorney for Mr. Horvath declined to comment.

The judge gave the Packos and Front Ballpark until Oct. 21 to respond to the motion, Mr. Coyle said, and TP Foods will have seven days after that to make a counter-argument.

In his filing last month, Mr. Packo, Jr. stated that on multiple occasions the corporation has expressly represented in writing to the U.S. Patent and Trademark Office that the name "Tony Packo" identifies a "living individual" under patent law whose consent is required for registration of a trademark or trade name. Mr. Packo is listed on several trademarks for packaging of food items bearing the Packo Inc. brand.

However, on all of the trademarks on file, it is Tony Packo Inc. that is listed as the applicant.

Lew Gibbons, a University of Toledo law professor specializing in trademarks and intellectual property, said it may be difficult for Mr. Packo, Jr., to win his claim that the "Tony Packo" name is his and not a company asset.

"They've been doing business as Tony Packo's for a long, long time," Mr. Gibbons said. "Most people associate the name with the restaurant and not a living individual. I think right now the goodwill of the name belongs to the corporation and not the individual."

And it also is well-known that the restaurant's name stems from Mr. Packo's father, Tony Packo, Sr., who founded the Hungarian-style food eatery nearly 80 years ago.

Still, Mr. Gibbons said, "the courts are loathe to tell someone they can't use their own name. So it's possible they can open a competing restaurant with a similar name and get away it."

What is less clear, he said is what becomes of the restaurant's recipes, in particular, its secret sauce mix. The "sauce" in question is a specific blend of spices used to season the chain's signature Hungarian hot dog sauce. The special blend recipes were passed by Mr. Packo, Sr., to his daughter, Nancy Packo Horvath, six months before his death in 1963 while he was in the hospital.

She alone knew the formula for two years until she shared it with her younger brother, Mr. Packo, Jr., and her son, Mr. Horvath.

Mr. Gibbons said the question of who owns the secret recipe could be complicated if more than one family member knows it.

"At that point, who owns the trade secret? Is it owned by an individual or the corporation? If it's owned by the corporation, it's an asset of the corporation and the receiver can dispose of it as well as any other asset," the professor said.

"But there's also no reason why, absent the court, that somebody who knows the trade secret can't sell their own Hungarian goulash or whatever," he said.

Rebecca Eisenberg, a University of Michigan law professor specializing in trademarks and intellectual property, said that if a name builds up recognition for a business, and people recognize that name with the business, courts usually award the name to the business.

"If the business is going to be sold as an ongoing concern, the trademark would generally go to the successor of the business," she said.

The situation is similar with the secret sauce, she said. The recipe has become part of the Packo's brand, she said. "If he's unwilling to disclose that, it may be the brand would be of a lot less value to someone who might want to buy that company."

The court likely would see the recipe as an asset of the company and include it in a sale, Ms. Eisenberg said.

Contact Jon Chavez at: jchavez@theblade.com or 419-724-6128.

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